United States: What's In A Name? That Which We Called The CFPB Is Still Bringing UDAAP Claims

The Bureau of Consumer Financial Protection ("Bureau")
announced its latest enforcement action
earlier this week, and it demonstrated yet again that,
notwithstanding Acting Director Mick Mulvaney's rhetoric, the
Bureau intends to continue to pursue claims of unfair, deceptive
and abusive acts and practices ("UDAAP"). Indeed, just
days after announcing that the Bureau will consider rulemaking to define
"abusiveness"—because the standard is not well
developed in the law in the same way that unfairness and deception
are—the Bureau brought its first new abusiveness claim of the
Mulvaney era. This continues a trend where on the one hand Mulvaney
announces the end of "regulation by enforcement" and on
the other hand continues to assert the same substantive legal
claims that have been the Bureau's bread and butter since it
was formed. While the volume of enforcement actions has dropped,
the substance of the actions that are brought hasn't
changed.

The latest action was against Cash Express, a small-dollar
lender based in Tennessee. The Bureau asserted three claims, which
we discuss below, in a consent order issued against the company.
The consent order requires the company to pay a $200,000 civil
money penalty and to provide approximately $32,000 in consumer
restitution. While those are relatively modest sums, there are
several surprising aspects to the Bureau's order, when
considered against the backdrop of its public pronouncements over
the past year.

The first claim asserted by the Bureau was that the company
engaged in deceptive conduct by sending consumers debt collection
letters that threatened suit when the company had either no legal
right to file suit (because the statute of limitations had expired)
and/or no intent to file suit. The consent order notes that the
company sued only five consumers out of more than 11,0000 to whom
it sent collection letters with respect to time-barred debt. The
Bureau found this to be a deceptive practice. This is not a novel
claim and is one in a series of cases in which the Bureau has made
similar allegations. The claim itself, therefore, is not
surprising.

What is surprising is the remedy—a requirement that the
company reimburse consumers for the debt payments they made in
response to such letters. There is no allegation in the consent
order that the amounts paid by consumers were not in fact owed. The
only allegations related to the misrepresentations in the
collections letter, which, according to the Bureau, would
reasonably affect consumers' decisions by encouraging them to
pay their debts to Cash Express in an effort to avoid being sued.
The Bureau under Richard Cordray's leadership often—but
not always—required consumer redress in similar debt
collection cases. But the two prior debt collection actions brought
under Mulvaney's leadership did not require consumer
redress—even in a case in which the Bureau alleged that the
debt collectors improperly inflated the amounts due to them. That
such redress would be required in this case—essentially
returning to consumers moneys that they had in fact owed the
company—is surprising given the lack of such redress in the
prior debt collection cases brought under Mulvaney's
leadership.

The second claim in the recent enforcement action was also a
rather straightforward deception claim based on the Bureau's
findings that the company told consumers that it may furnish
information about borrowers to consumer reporting agencies
("credit bureaus") when in fact it did not do so. The
inclusion of this claim is not noteworthy; it simply suggests that
the Bureau will enforce the law when companies affirmatively
misrepresent material information to consumers. It demonstrates
that the old rule "do what you say and say what you do"
still applies.

The third claim was the most surprising. It involved the
company's set-off practices. According to the consent order,
when the company cashed a check for a consumer who had an
outstanding debt to the company, its practice was to use the check
proceeds to pay off the outstanding debt and provide only the
remaining funds to the consumer. The consent order notes that this
practice was disclosed to consumers at the time they took out a
loan with the company and that consumers signed an acknowledgement
in the application that they had received these disclosures.

Nevertheless, the Bureau found the company's set-off
practices illegal for several reasons. First, the Bureau noted that
the disclosures sometimes occurred months or years before
a consumer presented a check to be cashed. Second, the Bureau
recounted in detail the company's policies and procedures to
not inform consumers coming in for check cashing services that
their check proceeds may be set off against any outstanding debt.
In addition to these policies, the Bureau cited a company training
document that instructed employees not to leave the check in a
place where it could be retrieved by the consumer. These practices,
in the Bureau's words, "nullified" the disclosures
that consumers had been provided. As a result, the Bureau concluded
that these practices constituted abusive conduct because they took
unreasonable advantage of a consumer's lack of understanding of
the material risks, costs or conditions of the company's check
cashing service.

There are several surprising aspects to this claim. The first is
that the Mulvaney-led Bureau would disregard the disclosures
provided to consumers about the possibility of set-off. While the
company took affirmative steps to not inform consumers of the
possibility of set-off at the time they presented a check to be
cashed, there are no allegations that the company made affirmative
misrepresentations to consumers regarding set-off. The Bureau
nevertheless found the company's conduct to have
"nullified" the disclosures previously provided. One
might expect such a result from a regulator focused on substantive
unfairness—indeed, the Cordray-led Bureau brought several
cases in which contractual language was deemed insufficient to
protect a company from UDAAP claims—but it is surprising that
a believer in the power of markets such as Mulvaney would authorize
such a claim.

The second surprising aspect of this claim is that the Bureau
chose to bring it as an abusiveness claim just days after
Mulvaney's speech noting that abusiveness is not a well-defined
legal concept and stating that the Bureau would consider rulemaking
to define its contours. There are two ways that agencies make
law—through rulemaking and through adjudication. The latter
has been criticized—most prominently by Mulvaney
himself— as "regulation by enforcement." Yet that
is precisely the route Mulvaney chose to take in this case. This is
all the more surprising because the Bureau could just as easily
have labeled the company's conduct as unfair or deceptive. A
practice is unfair where it causes substantial injury not
reasonably avoidable by consumers and not outweighed by benefits to
consumers or competition. To the extent that the Bureau found the
company's practice of going out of its way to not inform
consumers that their checks might be subject to set-off troubling,
the Bureau could readily have found that the practice would cause
substantial injury to consumers (the proceeds consumers did not
receive) not reasonably avoidable by consumers (because the company
took steps to not inform them of the possibility of set-off and
physically kept the check away from the consumer) and not
outweighed by benefits to consumers or competition. Alternatively,
the Bureau could have found that failing to inform consumers of the
possibility of set-off at the time of check cashing was a material
omission that rendered the transaction a deceptive practice because
it created the net impression that consumers would receive the full
value of their checks. That would certainly have been less novel
than claiming that the company's conduct "nullified"
valid disclosures and constituted abusive practices.

The only reason to frame this claim as abusive conduct is to
continue to provide additional contours to the meaning of
abusiveness. In this respect, the Bureau's claims is similar to
the abusiveness claim that the Bureau brought in a prior check-cashing case
that also involved allegations of affirmative steps to keep
relevant information away from consumers—in that case, the
applicable fees. To the extent the Bureau was seeking to provide
greater clarity to the meaning of abusiveness, however, it helped
muddy the waters by pleading its claims against the company under a
different prong of abusiveness than it had previously used in
similar circumstances. In the prior case, the Bureau claimed that
taking affirmative steps to hide check cashing fees from consumers
was abusive because it "materially interfere[d] with the
ability of a consumer to understand a term or condition" of
the cash checking service under prong (d)(1) of the abusiveness
standard. 12 U.S.C. § 5531(d)(1). In its most recent action,
by contrast, the Bureau claims that taking affirmative steps to not
inform consumers about the possibility of set-off is abusive
because it "takes unreasonable advantage of a lack of
understanding on the part of the consumer of the material risks,
costs or conditions" of the check cashing service under prong
(d)(2)(A) of the abusiveness standard. 12 U.S.C. §
5531(d)(2)(A). Although these standards are both defined as abusive
conduct under the Dodd-Frank Act, they represent separate legal
theories and separate legal claims. To the extent the Bureau
believes that the kind of intentional obfuscation at issue in both
cases is abusive because it prevents consumers from understanding
the terms of the service they are purchasing, one would expect the
agency to settle on a view as to which prong or prongs of
abusiveness apply and then consistently rely on that prong(s) as a
way of educating the marketplace about the meaning of abusiveness.
Instead, the only thing consistent about the Bureau's approach
is its inconsistency in determining what prong of abusiveness
applies to similar sets of facts. We previously discussed this phenomenon under
Cordray; it is apparently continuing under Mulvaney.

Mulvaney talks a good game about changing the nature of
enforcement at the Bureau. But his actions have not always matched
his rhetoric. We have written previously (here and here) about how the Bureau under Mulvaney has
continued to assert novel claims of abusiveness brought under
Cordray. Now it seems that Mulvaney is going to bring such claims
himself, while continuing the Bureau's tradition of
inconsistent pleading, which does little to clarify the
Bureau's understanding of what the different prongs of
abusiveness mean. There is no doubt that the pace of enforcement
under Mulvaney has slowed dramatically. But the substance of
enforcement actions has not changed nearly as much as Mulvaney
seems to want you to think.

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The FTC has long asserted it has the authority to bring actions in federal court to obtain injunctive relief and equitable monetary remedies (e.g. disgorgement, consumer redress) for unfair and deceptive practices.

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